Cablegate: Argentina Hosts Brazil, Bolivia Presidents On Looming


DE RUEHBU #0230/01 0570809
R 260809Z FEB 08





E.O. 12958: N/A
SUBJECT: Argentina Hosts Brazil, Bolivia Presidents on Looming
Regional Energy Shortages

Ref: 07 Buenos Aires 1456

This cable contains sensitive information - not for internet


1. (SBU) A bilateral Argentine/Brazil presidential summit in Buenos
Aires February 22 and a follow-on February 23 trilateral
Argentine/Brazil/Bolivia presidential summit focused largely on
regional energy coordination. Bolivia's President Morales
acknowledged his country's near-term inability to meet contractual
gas supplies to Argentina or to Brazil, and Brazilian officials
publicly rejected a reported request by Cristina Fernandez de
that Brazil cede to Argentina a small share of the gas it receives
from Bolivia to help Argentina meet anticipated high domestic demand
this coming (austral) winter. The GOA is likely to respond with
pressure on Petrobras's many Argentine interests. Local analysts
interpret the high-level -- and highly publicized -- Brazilian
rejection of Argentina's request as evidence that President Kirchner
is being poorly staffed and advised on international diplomatic
engagement. Brazil and Argentina also signed 17 bilateral accords,
including a Brazilian proposal to establish a regional defense
cooperation working group (Septel), nuclear cooperation (including
the structuring of "binational" entities to enrich uranium,
construct small civilian nuclear reactors, and the eventual joint
construction of a nuclear power submarine - septel), science
cooperation, civil aviation, broad economic cooperation, and broad
civilian rights accords. End Summary.

Argentine-Brazil Bilateral Summit: Energy and
Cooperation Agreements

2. (SBU) The Argentina/Brazil bilateral summit was President Lula's
first visit to Argentina following Cristina Fernandez de Kirchner's
(CFK's) December 10 inauguration. The February 22 bilateral agenda
included one-on-one meetings between the Presidents, expanded
meetings with their foreign and energy ministers, an address by
President Lula to a joint session of Parliament and a meeting
between Lula and the head of the Argentine Supreme Court. While the
media focus was on energy coordination and CFK's request (see para.
6) that Brazil cede a portion of its Bolivian gas supplies to
Argentina, a total of 17 bilateral accords were signed, according to
a GoA communique. During CFK's last visit to Brazil, she and Lula
had asked their ministers to provide them with concrete deliverables
for this first summit meeting.

3. (SBU) These accords included a Brazilian proposal to establish a
regional defense cooperation working group (Septel); nuclear
cooperation (including the structuring of "binational" entities to
enrich uranium, construct small civilian nuclear reactors, and the
eventual joint construction of a nuclear power submarine - septel);
science cooperation (including the signing of a bilateral pact for
the construction and launch of a joint ocean observation satellite
and the formation of a binational bio-pharmacology company); civil
aviation cooperation (including the possible manufacture and
maintenance of Brazilian Embraer aircraft in Argentina and the sale
of an Embraer jet for use by the Argentine Presidency); broad
economic cooperation (including on macro-economic target
coordination and regular WTO policy coordination, bilateral trade
account settlement in local currency, and cooperation between
Brazilian state-owned development bank BNDES and Argentina's
state-owned National Bank, building bridges over the Uruguay river
and binational railroad integration); and broad civil rights accords
(including joint commitments to promote and protect human, civil and
political rights and the creation of a high level coordination group
to ensure free circulation between the countries).

Trilateral Summit: No Additional Bolivian Gas
for Argentina in Near Term

4. (SBU) The February 23 Argentina/Brazil/Bolivia trilateral agenda
focused on Bolivian gas supplies. Burgeoning Brazilian and
Argentine demand for Bolivian gas remained the central theme of
bilateral and trilateral meetings. In Argentina, low utilities
prices have deterred foreign investment needed to boost domestic gas
production, and the GoA has relied on top-up imports from Bolivia.
But Bolivia itself has failed to boost its production since
nationalizing its gas industry in 2006. Local media reports that
President Morales and his Energy Minister Carlos Villegas made clear
at the February 23 trilateral summit that Bolivia cannot meet
ambitious export commitments to Argentina or to Brazil until 2009 at
the earliest. In an airport interview on his February 23 departure
from Argentina, President Lula said: "After so long without
significant investment in Bolivia, investment (in new Bolivian gas
production capacity) by Petrobras and by the GoB itself has begun.
In the medium term, Bolivia will be able to meet the demands of
Argentina and Brazil, and we will not have problems." Last week,
Brazil's Petrobras announced that it would boost its investments in
its Bolivian subsidiary by 33%, from US$ 750 million in 2007 to US$
1 billion in 2008.

5. (SBU) Bolivia currently produces roughly 40-42 million cubic
meters of natural gas per day (MCMD), of which roughly 6-7 MCMD is
consumed domestically. Bolivia has contracts to supply up to 30
million MCMD to Brazil and 7.7 MCMD to Argentina. But at present,
Bolivia is supplying only about 27 MCMD to Brazil and 3-4 MCMD to
Argentina. As the southern hemisphere winter approaches, demand from
both is expected to surge. Argentina currently produces roughly 51
MCMD of gas domestically. Shortfalls of Bolivian gas supplies
during the last austral winter forced Argentina to import expensive
diesel fuel to power generators and to purchase expensive
electricity from Brazil (reftel). Beyond Bolivia's currently unmet
contractual commitment to export 7.7 MCMD to Argentina, a 2006
Argentine/Bolivia bilateral agreement to construct a second gas
pipeline between the nations was to allow an increase in gas imports
to the 27 MCMD level by 2010. This project has been significantly
delayed on both the Argentine and Bolivian sides, and local energy
analysts do not expect the pipeline to be completed until 2011.
These same analysts question whether Bolivia will be able to expand
production sufficiently in the next four years to fill this new

--------------------------------------------- -----
CFK Asks Lula to Cede Gas, Lula Offers Electricity
--------------------------------------------- -----

6. (SBU) According to statements made to the media by Brazilian
Energy Minister Lobao, Argentine President Cristina Fernandez de
Kirchner (CFK) asked during their bilateral summit that Brazil cede
to Argentina one MCMD of the 30 MCMD Brazil has contracted to
receive from Bolivian order to help Argentina meet anticipated high
domestic demand this coming (austral) winter. Lobos said that
Brazil could not meet this request, but instead offered to export
some 200 megawatts (MW) per day of electricity to Argentina,
supposedly the electrical equivalent of this amount of gas. (During
the last austral winter, Argentina imported up to 1,100 MW per day
of premium-priced electricity from Brazil to meet peak demand
loads.) Brazilian Foreign Minister Celso Amorim told the media that
Brazil was happy to help Argentina, but within limits. "We'll do
everything we can to help Argentina, as long as we don't create a
crisis in Brazil in the process. What Brazil can't do is create a
rationing problem in one country to help avoid a rationing problem
in another." Petrobras President Sergio Gabrielli was less
diplomatic, saying to Argentine media February 23 that Brazil will
"note cede even one molecule" of gas to Argentina. And speaking to
press on his February 23 departure from Buenos Aires, President Lula
said: "Energy is not produced by gas alone. What is important is to
have a quantity of MWs available from Brazil to those countries that
need it, like Argentina and Uruguay. And, at times, we will need
(energy) from Argentina. So, a policy of solidarity is extremely

--------------------------------------------- -------
Argentina, Brazil, Bolivia Form Energy Working Group
--------------------------------------------- -------


7. (SBU) Following Argentina's unsuccessful attempt to gain a
commitment for additional gas supplies, the summit communique noted
an agreement that Energy Ministers of Argentina, Brazil, and Bolivia
would meet shortly to establish a coordination group to "explore the
best short- and long-term alternatives" to guarantee adequate
supplies of Bolivian gas to Argentina and Brazil. A statement
issued later by the GoA Foreign Ministry said that GoA Planning
Minister de Vido, Brazilian Minister of Energy and Mines Edson
Lobao, and Bolivian Minister of Hydrocarbons Carlos Villegas are to
meet within 10 days in La Paz to "analyze the evolution and
respective demands for energy and to coordinate appropriate
measures" and "to evaluate the growth in production and (energy)
infrastructure so that the development of (all three nations')
energy sectors can accompany economic growth."


8. (SBU) Regional energy politics are heating up. Beyond the
summit's talk of regional energy "solidarity" and the announcement
of (yet another) regional energy coordination meeting of energy
ministers, the bottom line is that Bolivia won't be producing
adequate levels of gas to meet growing Argentine and Brazilian
demand any time soon. Brazil's offer to provide Argentina up to 200
MW of expensive electricity this coming austral winter -- less than
20% of the electricity Brazil supplied to Argentina at the height of
last winter's shortages -- was certainly disappointing to GoA
officials. And the potential recurrence of domestic energy
shortages of the same magnitude as Argentina experienced last
austral winter raises a question mark on the performance of
Argentina's industrial sector in 2008. Even though the GoA denies
that last year's energy shortages caused a slowdown of economic
growth, GoA statistical data does show a sharp decline in the
industrial production index in mid-2007, when the industrial sector
faced severe gas and electricity constraints. The GoA argues that
subsequent production made up for the temporary shortages.

9. (SBU) Local analysts interpret the high level -- and highly
publicized -- Brazilian rejection of Argentina's request as evidence
that President Kirchner is being poorly staffed and advised on
regional diplomatic engagement. Kirchner's advisors encouraged her
to proceed with a public plea for gas despite clear signs from the
Brazilians that the answer would be no. But Embassy energy sector
contacts indicate that the GoA has cards to play to influence Brazil
to be more forthcoming, including the threat of cutting natural gas
supplies to Brazilian state oil company Petrobras's Argentine
petrochemical plants. (It appears that the GOA is wasting no time
in exerting pressure; a headline in the February 25 edition of a
daily linked to the GOA's Planning Minister announces a GOA probe
into Petrobras investment operations in Argentina.) Petrobras'
strong interest in acquiring a portion of Exxon's refinery and
service station assets in Argentina also offers the GoA additional
leverage in regional energy diplomacy. The GoA continues to
publicly state that new domestic gas discoveries and new domestic
generating capacity coming on line will see Argentina comfortably
through the coming austral winter's heating season. Behind the
scenes, however, the GoA is certain to spare no efforts to secure
additional Brazilian and Bolivian energy resources. A cold winter
in Argentina will undoubtedly raise political temperatures here.


© Scoop Media

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